Sunday, February 08, 2009

New York, like most every state, is faced with a massive budget gap for fiscal year 2009/10. State spending will be cut, existing taxes will rise in some cases, and there will be new programs for raising revenue. According to the Rochester Democrat and Chronicle, one of the revenue raising proposals put forth by New York Governor David Paterson is legislation that would allow supermarkets and grocery stores to sell wine.

The Governor claims this move will raise revenue because grocery stores that choose to sell wine will first be required to pay a "Franchise Fee," a fancy name for a license. It is estimated that under the new law, Franchise Fees would net $100 million for New York State in the next fiscal year. Paterson's office also claims that this move would lead to an increase in wine sales, generating further tax revenue.

Should New York State allow wine sales in grocery stores? This is a complicated issue, even without all of the various lobbying nonsense cluttering up the thought process.

Grocery stores and their representatives like to frame this as a customer service issue. As if it's concern for the customer, and not the significant new revenue stream that motivates the grocers. Just look at this quote from Jeanne Colleluori, a spokeswoman for Wegmans, a huge chain of grocery stores based in Rochester, NY:

We don't know the details of what he is proposing, but we love the idea. This is something we have been encouraging for decades now because we feel it would be a great service to the consumer.

Local wine shops and their lobbyists also seem to be willing to say anything to advance their argument. They like to threaten moral chaos, claiming that grocery stores could not reliably prevent minors from purchasing wine. Grocery stores already sell beer, and I assume that the typical minor would opt for beer over wine as the illegal alcoholic beverage of choice. And these are the same local wine and liquor stores that "unknowingly" sell booze to minors and knowingly sell booze to people whose rampant alcoholism forces their entire body to shake as they fork over $2.69 for a half-pint of Rotgut Vodka. Now, though, they are concerned about morals.

Maybe the best bit of nonsense is the actual revenue predictions themselves. Why would wine sales go up 20% if wine were sold in grocery stores? That argument assumes that demand for wine will be created as a result of this legislation, and the market already seems to show that wine sales are down. Perhaps grocery stores would see an increase in wine sales (where they currently have zero sales), but that surely would be balanced by a decrease in sales at local wine and liquor shops. Perhaps the Governor means that grocery stores would lower wine prices, thereby stimulating demand for wine, and resulting in a net increase in wine sales. Unless grocers can get discounts by buying in bulk from distributors, lower prices are unlikely. And even if they do get discounts, the Governor has quietly proposed an increase in the excise tax on wine from .18 cents to .51 cents per gallon. So before you get excited about paying $9 instead of $10 for Gallo Chardonnay, understand that you'll pay $9.33.

Let's cut through all the nonsense and take a real look at the issue. Maybe we can begin by listing a few things that I think of as basic truths:

1. The Governor needs to create revenue, and this is one way of doing so.

2. Wine and liquor store owners feel threatened by this proposal, as they fear it would take wine sales away, ultimately forcing them out of business.

3. Grocery stores love the proposal because it would allow them to open up a new and profitable business.

I think that the local wine and liquor shop owners have a legitimate argument. Local shops would lose sales to grocery stores, mostly in the low price, high volume, low profit margin wine category. There are people who entered the market as a wine shop owner with the understanding that they would not have to compete with large grocery stores. It's not fair to pull the rug out from under them now.

But I also think that separating the sale of food and wine is an artificial conceit. Why should a grocery store be allowed to sell chips, dip, and beer, but not wine or Gin? Why should a wine and liquor store be allowed to sell wine and Scotch, but not beer, cheese, or cured meats? Why should government ever enact laws that protect one type of business from healthy competition with other businesses? Well, there are times when protectionism might make sense, but American consumers are happier when those protections come in the form of tariffs against foreign producers of, say, steel, so that our own steel industry is advantaged. It's easy to understand why our government would try to protect American industries. Why would we favor one set of our businesses over another?

If New York decides to change the rules regarding wine sales, they should do so in a manner that removes all of the artificial barriers that currently govern grocery stores and small wine shops. Allow grocery stores to sell beer, wine, food, and spirits. Allow wine and liquor shops to sell beer, wine, food, beer, and spirits. If we're going to open the market, then let's really open it.

Local wine and liquor shops might have trouble competing with grocery stores under a truly open system, the way mom and pop coffee shops have trouble competing with Starbucks. But maybe that's not a bad thing. In fact, I think it is this competition that will in the end benefit consumers.

The only good thing in my mind about Starbucks is that it forces independent shops to compete, to provide better coffee, better bathrooms, innovative programs such as music recitals or other entertainment. Mom and pop coffee shops cannot compete with Starbucks on the cup of coffee alone. In the end, consumers have higher quality coffee shops to choose from.

Perhaps if Governor Paterson's legislation passes, the same thing would happen with wine shops in New York. There certainly are a lot of terrible wine shops offering crumby and poorly stored products sold by ignorant and/or indifferent sales staff. Under a truly open system, some of these stores would improve their products and service, others would not and would eventually close.

I think it's time to stop asking for artificial protections, time for everyone to step up their game. What do you think?

25 comments:

I actually do think it would lead to an increase in sales. For a lot of people wine can almost be an impulse purchase. Many of these people would grab a 9.99 bottle with their groceries, but would never bother to go to a wine shop for the same bottle.

The best thing about wine in the grocery store for me though is cooking. If I need a red or white wine to cook with, or some port or sherry; I can get it all in one place.

I think... and it's a multitude of issues, that the removal of artificial barriers, created in the past by special interests, is something that resembles progress. Here in CA. supermarkets sell wine and spirits and it apparently does not impact wine shops.That has of course evolved over time.

The government should also not protect domestic industries against foreign by enacting tariffs. If there's one thing economists of all stripes (unless they've been paid off by labor unions) agree on, is that Bush steel tariff was a terrible idea.

I don't always have time to make a 2nd trip to the wine shop- Grabbing the bottle in the grocer results in a sale that would have never happened otherwise.

In ATL, most of our grocery stores (even high-end shops), have nothing but plonk, or places like Whole Foods, have a decent selection, but their pricing is really out of whack.

One place does right- really right. Kroger (Ansley Park, Atlanta location). They have a fully staffed wine shop inside the store who's selection rivals any independent shop in the city. It is pilot that has been going on for several years.

I would assume places like Wegman's would go all out. (And probably put the squeeze on local merchants).

Though I do shop at Ansley Kroger often, I spend more time and money in my local wine merchants, when I have the time to search, chat, and not worry about my ice-cream melting.

Check out the wine selection in the Fine Fair on Flatbush near 7th Ave if you want a taste for what a lot of places would probably stock. They started by stocking Chateau Diana, which was probably legal because it is a "wine product" rather than a wine. (Never trust a wine that has to list its ingredients on the label!) Lately they've had a more diverse selection of actual wine surreptitiously tucked in alongside their beer. It's nothing you'd ever want to purchase, even to cook with, but it seems to get a bit larger every time I go in. Given how good their beer selection is maybe there's hope for the future. I'm with you, remove the barriers - allow wine stores to sell beer and grocery stores to sell wine/liquor. The places that truly add value to the shopping experience will survive.

Very fair-minded analysis, BG. This is a reform I would favor on "This is supposed to be a free country, goddammit" grounds, regardless of the consequences. That said, I'm not at all afraid of it harming any of the kind of wine shops you or I would care about. Supermarkets sell cheese, and great cheese shops like Murray's have no problem coexisting. The liquor stores most likely to be harmed by this are the blights that move Kendall-Jackson, cigarettes, and lotto tickets, and that's fine with me.

Funny you should mention Wegmans being interested. Here in PA we're not allowed to sell any sort of alcohol in grocery stores, but Wegmans loop-holed this claiming that their eatery section qualifies as a restaurant so they're allowed to sell beer for consumption on property and up to two 6-packs for take-out during normal operating hours.

You sir are a complete idiot. You are so ignorant and so uninformed that I can't even begin to comment on your BS. All you spout is feel-good, tree hugging claptrap. Buy a clue and get a life. Why do I bother!

Andrew - there may actually be new demand, according to your idea, and it's probably true. impulse buys might not take replace liquor shop sales.

Ned - what happened when the law changed, were there many stores in CA that went under? what was the transition like?

hey Gene - i hear you, i felt the same way, but the point i was making is that it's easier to justify to the public when it's an American company receiving protection.

dirty - it would be interesting to find out whether or not the fully staffed store inside kroger is profitable.

Joe - you're in the neighborhood, cool. i've seen chateau diana at many places and until i picked up the bottle i didn't realize that it was a "wine product." I wonder, is that sort of like potted meat food product?

keith - agreed on all counts. i think it comes down to this - murray's cheese, chambers st and their ilk include knowledgeable sales staff in their business model. grocery stores that sell cheese and eventually wine, do not. they in the end, may not even be in direct competition.

glenn - PA has some other weird issus involving wine sales, though, like a state run monopoly. good for wegmans for figuring out a loophole.

gretchen - was it always like that, or was there a transition that you remember?

hi anon - it's kind of hard to take your comments seriously, although i'd like to. i can see that i touched a nerve for you. why not start over, and explain why you disagree with what i said, and include your name? that way we can have a conversation. if not, fine, but please stop cluttering up my comments board with rudeness.

FYI, Nicole Wegman owns a pretty good wine store in the Rochester suburb of Pittsford. Not surprisingly, it has a great Finger Lakes selection. I'm sure that Nicole's father is poised and ready if this law takes effect.

If nothing else, I think this will be a boon for FL wines in Wegman's market areas. I also expect that Wegman's will do a pretty good job of sourcing, stocking and selling wine. I'm not as optimistic about the other chains, but this law is still long overdue.

I cannot tell you how long Michigan has sold wine and beer in their grocery stores. Years so why not have I bought any there well Village Corner also sells groceries however that probably would not qualify as a grocery store. I just remembered our Drug stores also carry wine and some liquor. Not top quality however Yellow Tail.

What Gretchen said -- wine shops sprouted like weeds in Chicago over the last two years, despite sales in grocery stores.

That said, I can see how this would be a big issue for shops in suburban, exurban, and rural areas, where you pretty much have to drive to get anything. And if you can make one less trip by getting wine at the grocery store, 95% of which is consumed within 48 hours of purchase, I think a lot of people will do so.

The timing of Patterson's proposal seems particularly bad for the low-end liquor stores who will lose biz to the grocery stores. Good neighborhood wine shops in urban areas that focus on $15 bottles should continue to do OK (the high-end shops have already taken a big hit).

That said, I've never lived in a place where wine wasn't sold in grocery stores and I believe a smartly-run, well-located wine shop should be able to thrive even in this economy. While this may cause pain for some upstate stores, I can't back small-shop protectionism, especially if $100 million can help shore up Medicaid funding, save many more jobs than would be lost, etc.

I like your comment about the separation of the sales of food and wine. Yes, it's artificial. Wine and food go naturally together and it would increase overall wine sales in NY to have your wine with your groceries.

I've always enjoyed when I traveled out of state and could pick up some wine with my vittles for dinner. It makes it much more of an impulse buy.

I am a winery owner in NY's Hudson Valley and I truly believe that the more wine people drink the better it is for every winery owner out there. The sale of wine in grocery stores will unfortunately put some Mom & Pop Liquor store out of business.

The stores that will survive will be the ones that know their stuff. I patronize my local wine store all the time because the guy is incredibly knowledgeable and tastes hundreds of wine a month. No clerk at Stop & Shop will ever replace him.

Well, we've already seen the effect of the current economic climate on CSW personnel. CSW survived a tough begining and I believe that with their service and selection they will do well. Any reduction of volumes will hurt, especially for shops with high fixed costs (read any shop that has a lease signed in the past several years at the higher rental rates). My point is that some shops will be pushed over the edge and close. I don't offer any estimate of how severe the effect would be.

On the wine in grocery stores issue:Certainly if it goes through, then liquor stores should be allowewd to sell groceries.But there is a real fairness issue here that your readers may not know about:Liquior stores are all mom and pop individual operations because that's all they have been allowed to be under state law for the last 75 years. This law dates from the repeal of Prohibition when the State was trying to get the Mob out of the liquor business.Meanwhile food stores have been allowed to consolidate into large, financialy powerful chains with billions in revenues.So, to now all of a sudden throw the corner liquor store into a free-for-all competition with the likes of Wal-Mart, just because Gov. Patterson needs money, is just a little unfair.It's like throwing the high-school chess champ into the ring with Mike Tyson just to boost ticket sales!

I was in Rochester visiting family just a few days ago. I live in California where, "yes", you can buy wine at the gas station. And to Promo Guy: Why shouldn't I buy wine at a gas station is I know what I am looking for? I don't need an expert to tell me what I like if I have already done my homework and tasting.

So after a long day with 'family' my wife and I wanted to take a little bubbly back to the hotel room and celebrate. This was at about 11pm. Ah ha! Wegmans is open! Nothing else that I am aware of is - nor after being gone 13 years would I know of any other place. Do the sell wine at a mega-store like Wegmans? They must! No? WTF? No?! Ah yes... New York... where no one goes unprotected from themselves... A great place to leave.

I just saw a a brief debate on Fox & Friends whether or not grocery stores should sell wine in the state of NY (please do not try this in CT or MA). The rational?...to raise offer less expensive wine, boost wine sales, and raise tax revenue for the state. I had to laugh when I saw a young woman from Whole Foods advocating this. Less expensive wine at Whole Foods? Has anyone tried to buy an apple there? Great store, but on the highest end of the price scale. There are lots of small liquor store owners who would be run out of business. Where has the American dream gone? To a big box store. BTW...I do not own a liquor store and do not have personal interest in any liquor stores.

I run a small boutique wine shop and one of the main reasons I oppose this change is its timing. Right now stores are overburdened with non-moving inventory and trying to move it (go talk deals with your local merchant) but it doesn't move in this economy. If the things that are still moving, i.e. inexpensive wine with high turnover, get taken away from the stores, their cash flow will dry up as they try and adjust to this new economy and that cash flow allows the small store to buy those boutique wines. Remember, wine has been a very strong growth market for the past decade and things have changed dramatically. Some stores, big stores in Manhattan have seen a 30% drop in their business alone without this drastic change. Its a tough economy and I think the small stores should be given a break at this time, if anything, to preserve some jobs that everyone is so desperately seeking right now. Its not a good idea at this point in time for an obscure sum of money that will be spent in the first year re-writing laws and enforcing those new laws. Its a short-term gain long-term loss agenda. Thanks for listening.

I also understand the argument of both sides. I like to shop at my local wine shops- especially the ones that have helpful, knowledgeable staff, but I would probably buy more wine if I had the convenience of the grocery store. I live in a pretty rural area. The time issue is a big one too. I can't tell you how many times I wanted to buy a bottle of wine at 10pm and couldn't. This equals lower sales!

For all the people who think putting wine in the grocery is so convienient for them, just imagine you are one of the liquor store owners now, I bet you will never say that. Is people like you who don't care that all small business are swallowed up by big corporation chain stores. You will never say that if your livelihood is being threatend. If you think that way, please don't say it, you are not sensitive for those small liquor store owners who worry about losing their business and their employess are going to lose their jobs because your convenience, don't you have a car to drive around-that's convenience!

The entire wine industry in New York State stands to benefit from expanding our markets by extending the ability to sell wine to grocery stores that are already licensed and selling beer. It's simple. More customers lead to overall increases in wine sales. Competition will determine how those sales are divided between producers, wholesalers and retailers. I am a firm believer in the value of competition. Increasing competition will invariable lead to a stronger businesses, better value and a stronger economy.

It is likely that most grocery stores will carry a streamlined selection of wines that will be popular with our current wine consumers and with folks who, up to this point, didn't even think of having a glass of wine with their dinner. The inspiration of seeing wine alongside food in the grocery store, and the convenience of picking up a bottle to share at dinner that night will introduce the pleasure of enjoying wine with food, a pleasure that all of us wine lovers take for granted, to a whole new segment of the population that does not currently enjoy wine. This will increase our potential wine market by engaging people in the discovery of wine. And we all know what happens when somebody discovers wine; Curiosity and inquiry leads them to the place where they can find interesting wines and knowledgeable staff to answer questions and make recommendations. They will find this expertise in our current wine shops that, with attention to quality and customer service, will find an expanded market in which to thrive.